Tips and tricks to look over if you are claiming R&D credit
In September 2017, the IRS issued a directive to its Large Business & International (“LB&I”) unit regarding the examination of QREs related to the R&D tax credit. The directive includes five conditions that, if met, will result in the IRS not challenging or separately computing a taxpayer’s reported QRE shown on the tax return. However, other components of the R&D credit computation can still be challenged. This is a big win for large companies that meet these requirements, as it eliminates some of the uncertainty regarding IRS audits.
For the reported QREs to be accepted by IRS examiners, all of the following conditions must be met:
- The taxpayer must have $10 million or more of gross assets
- The taxpayer follows U.S. GAAP for their audited financial statements
- The R&D expenses are disclosed separately in the taxpayer’s financial statements (a footnote is acceptable)
- Under penalties of perjury, the taxpayer signs a Certification Statement Claiming Adjusted ASC 730 Financial Statement R&D as QREs (either attached to a timely filed return or separately given to an examining agent)
- The taxpayer produces bridged reconciliations of the R&D expenses per the financial statements (ASC 730) to the reported R&D tax credit (Form 6765)
Take a look at IRS Audit Techniques Guide here.